Axis 3rd quarter results demonstrate signs of a market slowdown, most strongly in Europe but with leading indicators globally.
- Worldwide video growth decreased from 37% in Q2 to 32% in Q3.
- Europe video growth plummeted from 37% to 11%. Axis explained that, "A number of European markets have been characterized by a degree of caution and have displayed a slower growth rate for network video during the quarter."
- US video growth slowed from 36% to 32%.
- Axis admitted that the transition from analog to IP has been slowed by the financial crisis
- Axis admitted that projects are being delayed.
"The current financial turmoil has meant in some cases that decisions on security installations have been deferred, which in turn has affected the pace of the technology shift from analog to digital technology."
As the chart below demonstrates, Axis video growth (red line) has been slowing significantly since the middle of 2007 (coincidently the peak of the housing bubble?).
What is the cause?
I offer two hypothesis to evaluate:
- The economy is pulling down the IP video market resulting in lower growth in 2009.
- Axis' competitive differentiation is dimishing causing its dominance in the IP camera market to decrease.
On the positive side for Axis, their Operating Margins were unchanged from Q2. Interestingly though it looks like they slashed Sales and Marketing costs by 10% to achieve this. [Note: if Axis thought that the market was going to recover quickly, it is unlikely that they would have cut sales and marketing costs so significantly]
What will happen next?
The title of their presentation is "Continued Profitable Growth". While this is definitely true, it is misleading. Growth deceleration will continue and should quicken in Q4, especially in the US where the impacts of the credit crunch are likely to start taking effect.
What's interesting now is: how will they and others respond?
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